LONDON, England (CNN) -- British Justice Minister Jack Straw denied Sunday that the Lockerbie bomber was freed from jail as part of an agreement to allow a British energy company to drill for oil in Libya.

"There was no deal over the release" of Abdelbeset Ali Mohmed al Megrahi, Straw said.

Straw was responding to newspaper allegations that the British government wanted al Megrahi to be eligible for release in order to smooth the way for BP to win exploration rights in Libya.

He called the Sunday Times assertion "wholly untrue."

Al Megrahi, 57, was serving a life sentence for bombing Pan Am Flight 103 over the Scottish town of Lockerbie in 1988, killing 270 people, including 189 Americans. He was freed earlier this month because he has terminal cancer. Watch more about suspicions of a deal »

Straw confirmed Sunday that he had tried -- and failed -- to keep the Lockerbie bomber out of an agreement to send Libyan convicts back to the north African nation to serve their sentences there.

But he insisted that the concession to Libya was irrelevant to the release of al Megrahi, since the bomber was freed on compassionate grounds, not as part of a deal with Libya.

"This debate is academic," Straw said. "There has been no release under the prisoner transfer agreement."

MacAskill had jurisdiction over al Megrahi because he was jailed in Scotland.

But Pamela Dix, whose brother was killed on Pam Am Flight 103, told ITN, "I think it would be naive to feel that international trade had nothing to do with relations between Libya and the United Kingdom and discussions around Megrahi.

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"However, I would have expected the British government to put the safety and security and getting to the bottom of the biggest mass murder in this country to come before any such considerations," Dix said. "For Jack Straw to indicate that it is academic to discuss the prisoner transfer agreement because Megrahi was released on compassionate grounds is an insult."

Dix said she is concerned that "we will never get to the bottom of what happened."

The Sunday Times claimed that Libya had insisted that al Megrahi be freed before it would approve an enormous contract with BP.

BP announced the deal in May 2007, promising an initial investment of $900 million to explore two Libyan areas -- one the size of Belgium and the other as large as Kuwait.

But Libya did not approve the deal until after London dropped its objection to releasing al Megrahi, the Sunday Times alleged.

It said Straw had written to MacAskill in December 2007, saying "wider negotiations with the Libyans are reaching a crucial stage" and that he was dropping his effort to exclude al Megrahi from a prisoner transfer agreement "in view of the overwhelming interests of the United Kingdom."

CNN has not confirmed the contents or the existence of the letter.

Libya's parliament approved the BP exploration deal four days after the alleged Straw letter was dated.

The United States opposed al Megrahi's release, and President Barack Obama said the hero's welcome al Megrahi received on his return to Libya was "highly objectionable."

The Foreign Office emphatically denied al Megrahi was freed to boost British business interests.

"Any suggestion that al Megrahi's release is related to a trade deal is completely without foundation," a Foreign Office representative told CNN, declining to be named in line with policy.

The spokesman said that any focus on Straw's reported shift in position was "a red herring."

"The decision was to transfer Megrahi on compassionate grounds and was taken by Scottish Ministers alone. The Scottish decision to release Megrahi was not made under the" prisoner transfer agreement with Libya, he said.

Former South African President Nelson Mandela supported the release of al Megrahi, a Scottish government spokesperson told CNN Sunday.

Prime Minister Gordon Brown has said in the past that the decision was made by the Scottish authorities, not the British government in London.

But his political opponents immediately demanded an investigation.

"We need a select committee inquiry so ministers and officials can be questioned about exactly was said and done over relations with Libya," David Lidington of the opposition Conservative party said Sunday.

Brown's Labour government "will not now escape the suspicion of a terrorist-for-trade deal unless they agree to the transparency of a full inquiry," Liberal Democrat Edward Davey said. "The Prime Minister can no longer hide behind (Scottish government) compassion for a sick man when it seems compassion for commerce was at the centre of his government's thinking."

BP, the energy company, declined to comment on the story.

"We were not a party in any governmental agreement and we are not aware of any such deals, and thus we have no specific comment," a spokesman told CNN.